If you have bought shares in the past, it is likely you would have received calls from Indore stock brokers or stock advisory firms in the last 6 months. This post looks into the practices of some establishments there who use hard tactics to subscribe investors to their services. Their advise too is often to the detriment of the investors
Indore stock brokers and advisors have received a lot of censure over the last 2-3 years and for good reason. These outfits have promised naive investors many riches like 200% profit margins on investments.
All this, while their real business is to sell you their premium subscription packages.
We shall look closely at their business practices and techniques in further sections
Don’t forget to read my article on How I Made ₹100,000 in Less Than 2 Weeks with Stock Tips. You will find many insights on how stock market tips work and make high returns at almost zero cost at zero risk.
Money for Information
“Money for Information” is a model which has been in existence for centuries. Make no mistake – I am a firm believer in paying the piper; in this case, compensating a firm for doing stock market research on your behalf.
Stock research firms have continued on this ‘money for information’ legacy and have added new complexity to it. For a fees, brokers offer calls (sometimes at a price, sometimes free) on different instruments and duration of trading.
A review of the fees charged by these players show how profitable the tip-giving industry can be. This is inspite of my research showing that the accuracy of these tips almost never crosses 30%.
As as these stock brokerages firms might say in Gekko-ish terms “Greed is Good“
Fees Charged by Stock Advisory Firms
The fees charged by some firms are –
- StockMarketTipsIndia.com offers 1. Intraday Calls, 2. Future & Options Calls, 3. Equity Short Term Delivery Calls, 4. Equity Long Term Delivery Calls and 5. Premium Support at packages which’ll cost you ₹13,200 per year.
- EquityPandit.com offers a basic package for ₹60,000 per year. It also offers a Stock Option package for ₹60,000 and Stock Cash Premium package for ₹180,000 per year
- MasterStockTips.com packages range from ₹36,000 to ₹60,000 per year
- FinanceAstro.com packages range from ₹20,000 to ₹1,000,000 per year
- And many more firms like A1IntradayTips.in, ShriStockTips.com, TrifidResearch.com etc.
Use of Google Search & Other Paid Advertising
A number of these firms (including Indore stock brokers & advisory establishments) advertise on Google. They use search engine marketing results pages to showcase 99% accuracy on their intraday tips. The advertising copy says they can ‘magically’ turn an investor’s ₹200,000 investment into a ₹100,000 profit in just over a month.
Over time, the platform used for disseminating stock tip information has moved from the personal telephone call to the more detached internet login & text messages. The phone was better – atleast you had an opportunity to shout at your broker incase the previous tip did not perform per your expectations
More recently, information sharing seems to have been whatsapped with Whatsapp being the preferred medium of sharing stock tips. It doesn’t surprise me as the same medium is used to share/forward jokes, politics and fake news.
Going mainstream with business channels on TV
The one medium which adds most glamour to these stock market tips has to be television. Stock experts greet us each morning and all through the day, they make calls on how certain stocks are going to move.
The stock gurus on these news channels present charts, talk about pivot levels, Elliott waves, support, resistance etc. They have written books on penny stocks, swing trading, intraday money making and many other investing topics.
However when I ran the numbers, the stock guru calls yielded an accuracy of only 22%.
22% is much lower than a 50% accuracy of prediction that you can get from a random coin toss. And it gives me no comfort that 22% is higher than the 10% accuracy that was presented by bigger brokers like Kotak Securities, Angel Broking and ICICI Securities, whom we tracked in the stock broker predictions section of a previous post.
Indore Stock Brokers Boiler Room Operations
The unscrupulous stock broking and advisory firms follow the “boiler room” template. This is where rows of call-centre agents sweet talk you with promises of 200% returns in a month, offer pay-for-performance-only and give an assurance of sharing in losses, if any. This has been the modus operandi for many stock broking and advisory firms based out of Indore.
Let’s look at the boiler room operating model of an equity research and brokerage firm in Indore –
Step 1 (day 1)
The stock advisor will ask you to register with them for basic services or the SILVER package as most of them will refer it to.
Further, the agent will give you some amazing testimonials on how he helped a couple of Uber drivers finance their child’s education using the profits earned from trading.
He will further inform you that the quarterly package costs ₹10,000 and that he has been authorized by his superiors to offer you a 2-week free Do-It-Yourself trial account against a deposit of just ₹2,000.
(catch 1) The agent will not inform you that this ₹2,000 is non-refundable.
Step 2 (day 4, morning)
Over the next three days, you will be sent about 3 to 4 stock tips per day. It’s probable that you would not have taken any action against the tips sent because you are still new to trading.
Here’s what the agent will be whatsapping you on day 4
(catch 2) Notice how the agent is using psychological warfare against you.
1. A picture of the Goddess Lakshmi
2. Using confusing terms that you might not understand like CMP, Intra, TGT and SL
3. Reminds you of the profit that should have made with the previous tips. Now, it is highly probable that you didn’t execute those trades and didn’t make any profit or loss. (but what you might realize is that the trades didn’t go as predicted by the agent but you anyways wouldn’t know that because you have been buzy with your job rather than spend time on a “free” trial)
Step 3 (day 4, evening)
The Indore stock brokers agent will call you and congratulate you on successfully realising a profit of ₹25,000 over the last 4 days. He will certainly mention that he should buy him a small present. And will quickly gravitate to reminding you that a gift for your wife and children is certainly called for.
Since most users don’t have the gall to explain that they missed out on ₹25,000 in profits, you will thank the agent for the wonderful tips. The naive investor will further say that you need more support with the trades as you are quite buzy during the day at work.
In response to your problem, the agent will advise you to upgrade to the SILVER package at ₹10,000 which will allow his equity research firm to attach a dedicated advisor to your portfolio. This advisor will execute trades on your behalf at the right moment so that the profits from trading can be maximized with zero risk.
To sweeten the deal, the agent will offer you a ₹1,000 discount on top of the ₹2,000 already paid, leaving you to pay the balance ₹7,000.
(catch 3) The agent will call you only if that day’s call actually happened. He will not take a chance to call you when they published an ICICI bank BUY call and the exact opposite happened
Don’t leave money on the table
If you say that you don’t want to continue with this service, the agent will offer you a ₹4,000 one-month package. He’ll say that your ₹2,000 is already with us plus he’ll work out a discount of ₹500 leaving you with only ₹1,500 more to pay to get a month’s worth of stock tips.
The agent will re-emphasize that 4 days has yielded ₹25,000 in profits. And if you give him one month there is every chance that the user will make atleast ₹150,000 in profits. An investment of ₹1,500 for a profit of ₹1,50,000 is a no-brainer for most. The agent will drive home that message.
Broker puts in
his your money into the game
Say you paid the balance ₹7,000 for the SILVER package which means your total outlay to the firm is ₹10,000. Now, assume something adverse happened in the stock market over the next 6 weeks and your investments are down by ₹5,000. The broker will prop up your profits with the ₹10,000 he already has and will show you a net gain of ₹5,000 — to keep you in the game.
The agent will take advantage of this and will try to lock you up with an annual ₹60,000 PRO package. Afterall he has proved to you that even when the equity markets are going down, his firm’s superior research has defied all odds to show you a profit.
Boiler Room Tricks
1. Agents play different roles at the call-centre
To convince you to sign up, agents will set up a call with the firm’s “vice president” who leads all investments. They will grind you with his “laurels” and say that he is the author of a couple of best sellers on investing. What you don’t know is that this is another agent posing as the vice-president. This is done to gain higher trust and closing the sale.
The “vice president” will build urgency by making you believe through some concocted story that the Reserve Bank of India is going to increase the interest rate next week and he has first hand information about it.
As a consequence, he has identified 7 stocks which will jump up by 6 to 8% on this announcement. He will add himself to the mix and he say that he is gobbling up shares in these companies for himself too in anticipation of this sure-shot event to give unprecedented profits.
This “revert to authority” tactic can be very convincing. It is best explained with Stanley Milgram‘s controversial experiments conducted in the 1960s. In these experiments, it was shown that having an authority figure becomes a primary mover in getting people to do things which they, under normal circumstances, will never do.
If you haven’t watched any videos on the Stanley Milgram experiments on obedience under authority, I suggest you do watch the below video. Highly recommended
2. Play-act the role of a friend and well-wisher
Agents will certainly try to side with the prospect and play the role of a true friend. This is done using a number of available tactics –
- They will offer discounts over the listed price because they feel you a genuine person. They will appeal emotionally & say that you are someone who can really use the profits responsibly on their child’s education. Or maybe, pay off the home loan (a sweet deal + emotions at play)
- They will happily bend the rules to accommodate you like offering you personalized equity research advice and risk profiling. They’ll say this is available only to GOLD customers but will be extended to you although you are on the SILVER plan
3. Offer free trials of their premium stock tips package
Agents will offer you free trials only to talk to you. So even if your free trial is over and the agent feels that you aren’t convinced and will be difficult to sign up for the plan, pop comes out an SMS and a phone call saying that your free trial has been extended by one more week.
4. Change surnames on the call to build empathy
Agents change their surnames on the call to build warmth with the prospect. So Abhishek is Abhishek Singh on one day and Abhishek Thakur on the other. Or they will use generic statements to build social currency by saying something like “Most of my customers are from Bangalore and they are the ones who have made the most profit on our platform”
It hurts that so many people fall for it. You might want to believe that the people who fall prey to this are the illiterate, emotional and gullible ones of our society.
Unfortunately greed is a sin that affects rich & poor, young & old, man & woman alike. Think Jordan Belfort’s Stratton Oakmont or more recently, Bernard Madoff of Bernard L. Madoff Investment Securities LLC. Madoff, a former Chairman of NASDAQ, orchestrated a $65 billion Ponzi scheme over many decades. The clients who were duped in this elaborate plot included the who’s who of society including director Steven Spielberg, actor Kevin Bacon, actor John Malkovich and broadcaster Larry King. Some institutions that lost money in this fraud include the Fairfield Greenwich Group ($7.50 billion), Banco Santander ($2.87 billion) and HSBC ($1 billion).
Still confused how a boiler room works? Check out this scene from The Wolf Of Wall Street (book link) on how clients are pressurized by salesmen on a phone to sign up to their service. Video contains some profanity, please exercise viewer discretion
Nothing beats the common sense you have accumulated over the years. If a person over the phone can promise you a 200% return over six months and you fall for it – then you are the one at fault.
Before taking advice from anyone, do check for the credentials of the advisors and his/her standing in this business. The SEBI has strict rules on who can offer stock market related advice and the necessary certifications that the person needs to have. These certified advisors have to follow rules regarding disclosures, continuous education and follow a code of conduct as advised by the regulator from time to time
Don’t ask a general for advice on war. And don’t ask a broker for advice on moneynassim nicholas taleb
It’s not as dramatic as Nassim Taleb, the author of The Black Swan, makes it but there are merits in having a good stock advisory. Finding the right broker is half the battle.